Maximizing Impact Through Strategic Tax Credits

Helping Pennsylvania Businesses Support Meaningful Causes While Preserving Cash Flow

Pennsylvania businesses have the opportunity to turn state tax payments into direct investments in local education. Through the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC) programs, companies can apply a portion of their state tax liability toward approved educational organizations, helping to fund student opportunities without significantly impacting cash flow.

Both programs are administered by the Pennsylvania Department of Community and Economic Development (DCED) and allow eligible businesses to receive tax credits equal to 75 percent of their contribution up to a maximum credit of $750,000 per tax year. If a business commits to the same contribution amount for two consecutive years, that credit increases to 90 percent. This creates a powerful incentive for companies to make consistent, impactful contributions.
In total, Pennsylvania has allocated $263 million for K–12 EITC scholarships, $20.5 million for Pre-Kindergarten programs, and $65 million for Opportunity Scholarship funding. These credits are limited and awarded on a competitive, first-come, first-served basis, so timing matters. Preparing early and submitting your application promptly once the window opens is critical for approval. For more information about the EITC program, please visit http://www.dced.pa.gov/programs/educational-improvement-tax-credit-program-eitc..

Organizations approved to receive contributions under these programs fall into three categories:

1. Scholarship Organizations provide tuition assistance to students from low- to moderate-income families.
2. Educational Improvement Organizations support public school enhancements through initiatives such as STEM education, the arts, and career readiness programs.
3. Pre-Kindergarten Scholarship Organizations expand access to early learning opportunities. Businesses receive a 100 percent credit on the first $10,000 donated and a 90 percent credit on every additional dollar, up to a $200,000 annual cap.

To illustrate the financial impact, consider a manufacturing company that anticipates a Pennsylvania tax liability of $50,000 in 2025. By enrolling in the two-year EITC program and contributing $50,000 in both 2025 and 2026, the company receives a $45,000 credit each year. The actual out-of-pocket cost is just $5,000 per year, yet the full $50,000 benefits the community. Over two years, that’s $90,000 in redirected tax payments, creating a measurable educational impact, for just $10,000 in real cash outlay.

To participate, a business must operate in Pennsylvania and be subject to one or more of the following: Corporate Net Income Tax, Capital Stock or Foreign Franchise Tax, Bank Shares Tax, Insurance Premiums Tax, or Title Insurance Companies’ Tax. Once approved, businesses are required to make their contribution within 60 days and provide documentation within 90 days. Funds must be sent to the organization specified in the approval letter; no changes are allowed after approval.

Applications are submitted through DCED’s online Single Application portal at www.esa.dced.state.pa.us. Businesses renewing two-year commitments may apply starting May 15. First-time applicants and those initiating new commitments may apply beginning July 1. Credits are awarded until funds are exhausted, and submitting early provides the best chance for approval.

The OSTC program follows a similar structure but focuses on providing scholarships for students attending underperforming public schools. For details, visit www.dced.pa.gov/programs/opportunity-scholarship-tax-credit-program-ostc.

Beyond these state credits, businesses may also benefit from federal charitable contribution deductions. The IRS allows corporations to deduct up to 10% of their taxable income for qualifying charitable donations. Any surplus amount may be carried forward for up to five years. Additional guidance is available at www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions.

Another strategy involves donating appreciated assets such as stock or real estate. This allows businesses to avoid capital gains tax while claiming a deduction equal to the asset’s full fair market value. It’s especially effective for companies with long-held investments seeking to make a charitable impact.

High-earning individuals can also participate in the EITC program by contributing through a special purpose entity. They can receive a Pennsylvania personal income tax credit equal to 90 percent of their contribution, and the remaining 10 percent may be used on their federal return. This credit provides another opportunity for philanthropy.

When considering these options, it’s important to evaluate annual tax projections, cash flow, and contribution timing. Businesses with fluctuating income or undergoing ownership transitions may prefer one-year commitments, while others may benefit from the predictability of a two-year plan. Because approved credits are irrevocable, careful planning is essential before applying.

Many recipient organizations provide annual impact reports outlining how donations were used. These reports can help communicate outcomes internally and with clients or partners. Businesses that align their charitable giving with long-term strategy often see additional value through stronger community ties, increased employee engagement, and enhanced brand goodwill.

Pennsylvania’s tax credit programs provide a valuable opportunity for businesses to support education while effectively managing their tax obligations. By taking a proactive approach, companies can contribute to the community’s well-being, build strong partnerships, and ensure that their financial resources are utilized effectively for both the business and the causes they care about.
Start planning your participation today. Let’s discuss how these programs can enhance your tax strategy. Contact us today!